BoE in Focus After Fed Hikes

The Fed hiked, the USD weakened, and the BoE is in focus today.

Previous Day's Market Highlights

As was widely expected, the Fed announced a rate hike of 25 basis points to a target range of 1.50% to 1.75%. However, the Fed’s guidance was considered less hawkish than some investors had been expecting, with the median number of rate hikes projected this year unchanged (a further two), and the dollar weakened. As a result, sterling-dollarreclaimed 1.41 and euro-dollar made gains above 1.23 but met resistance ahead of 1.24.   

Earlier in the day, UK wage data surprised markets, rising more than had been projected. Sterling moved higher on the release, breaking 1.1450 against the euro for the first time since 1 February. Sterling-dollar continued to trade above 1.40. The pound hit new highs against the Aussie since the referendum and against the kiwi since December.
 
In other data news, the US Current Account deficit widened in Q4. The RBNZ kept interest rates on hold at 1.75% as was expected, again saying that monetary policy “will remain accommodative for a considerable period”. The lack of surprises had a limited effect on the kiwi dollar. The Aussie dollar weakened overnight after Australian employment data disappointed as the Unemployment Rate rose to 5.6%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1444 1.1486 1.1150 2.93%
GBP/USD 1.4162 1.4179 1.3711 3.30%
EUR/USD 1.2372 1.2447 1.2154 2.35%
GBP/AUD 1.8275 1.8314 1.7599 3.90%
GBP/NZD 1.9540 1.9644 1.8904 3.77%
GBP/CAD 1.8244 1.8417 1.7584 4.52%

Today's Market Highlights

Attention today shifts to the Bank of England. While no policy changes are expected, investors will be paying close attention to any clues in the Bank’s guidance that May is in play for a rate hike. Market expectations of a May hike rose after the BoE took a more hawkish tone than expected last month, saying that rates may need to rise sooner than markets had been expecting—November, at the time. Any such clues could strengthen the pound, while if market expectations are disappointed, sterling could instead weaken.
 
Earlier in the day, markets will keep an eye on the UK’s February Retail Sales, which are forecast to have picked up month-on-month but slowed year-on-year. In the afternoon, attention turns to US data, including weekly Initial Jobless Claims and Markit Manufacturing and Services PMIs.
 
Brexit and US trade policies are on the agenda at the European Council meeting staring today. 

Today's Economic Calendar

Time Currency Release Consensus Previous
24hr EUR European Council Meeting
09:30 GBP Retail Sales MoM (Feb) 0.4% 0.1%
09:30 GBP Core Retail Sales MoM (Feb) 0.4% 0.1%
09:30 GBP Retail Sales YoY (Feb) 1.3% 1.6%
09:30 GBP Core Retail Sales YoY (Feb) 1.2% 1.5%
12:00 GBP BoE Interest Rate Decision 0.5% 0.5%
12:00 GBP Monetary Policy Summary, Minutes
12:30 USD Initial Jobless Claims (16 Mar) 225K 226K
13:00 USD Housing Price Index MoM (Jan) 0.5% 0.3%
13:45 USD Markit Manufacturing PMI (Mar) 55.5 55.3
13:45 USD Markit Services PMI (Mar) 55.8 55.9
17:00 GBP BoE Ramsden Speaks
18:45 CAD BoC Wilkins Speaks

Caxton